No Timeout in Gougers’ Hardball Game With State

Call it corporate hardball. That’s the polite term. Many are just calling it blackmail.

Hardball or blackmail, it’s an example of why there’s growing support in the Capitol for the state venturing into public power.

“My goal is to give us some control over our destiny,” Senate leader John Burton (D-San Francisco) told the Senate Energy Committee Tuesday.

Referring caustically to the “outside profit makers,” Burton asserted: “We think they’re going to look after our interests? It’s been shown that nobody has looked after our interests except us.”

The Senate committee approved two public power bills by Burton. One authorizes Gov. Gray Davis to negotiate with the private utilities for purchase of their electricity transmission lines. The other creates a state power authority to build generating plants, or help local utilities build them.

The private utilities would use the purchase money for the transmission lines--estimated at anywhere from $3 billion to $9 billion--to avoid bankruptcy by paying off their mounting debts.

The hardball is being played by several out-of-state power generators owed hundreds of millions by Edison and PG&E; for wholesale electricity. The generators are refusing to sign long-term contracts with the state to supply affordable power until the state guarantees they get their money from the deadbeat utilities.

That’s a problem between the generators and the utilities, state negotiators keep insisting. But, clearly, it’s also a problem for the state. Because the longer this impasse goes on, the longer the state must shell out an average $45 million per day to buy power on the sky-high daily market.

The state already has pumped out enough tax money to build two or three power plants.

“It’s wholesale blackmail,” says one official familiar with the contract negotiations. “Is it illegal? No. Is it ethical? Whewww!”

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What typically has happened is that the state and a power generator will agree on contract terms. Then the generator refuses to sign unless, by a certain deadline, it’s guaranteed that the utility debt will be paid. The deadline passes and the deal must be recooked.

Davis and the Legislature are trying to devise a bailout--or asset buyout--to rescue the utilities. But state negotiators are refusing to link that to the long-term supply agreements. For one thing, the generators may have to eat some of the money they’re owed.

After all, it was the generators’ gouging of the utilities--reaping markup profits of 100%-300%-500%--that drove Edison and PG&E; toward bankruptcy in the first place.

All the gougers, however, aren’t from out of state. And neither are they private companies. One of the biggest profiteers is the L.A. Department of Water and Power. It has been selling power into the California grid for astronomical prices.

One white hat is a San Jose-based company, Calpine, which is building three power plants in Northern California. Unlike some out-of-state generators, Calpine is not playing hardball with Sacramento. It was one of the first to sign a long-term contract, good for 10 years.

Calpine announced this contract or we might not know about it. The state has been keeping secret the details of its negotiations and agreements. But, from all indications, the talks are not going well. Only four contracts have been signed.

Duke Energy, one of the holdouts, put its hardball strategy in writing in letters to the governor and legislative leaders.

Any long-term contract must be “part of a comprehensive solution to the energy crisis,” the North Carolina company wrote. “Part of the comprehensive solution must include assurance that our past due receivables will be collected.”

Says Burton: “They got a long wait.”

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Burton told reporters about a meeting he had with an out-of-state power executive: “I said, ‘You’re telling me’--pointing to one of his people--’he owes you money, so you’re not gonna sell him anything. I’ve got cash, you’re not gonna sell me anything cash back because he owes you money?’ I says, ‘See ya later.’ ”

“If they try playing the people of California for chumps,” Burton continued, “that would be the time to move in and let ‘em know what the laws of the state are. And the laws of the state say we can grab your plant.

“And then they say, ‘Well, who else is going to build plants here if you do that?’ And my answer would be, ‘The people of the state of California through a public power authority. And you guys can go peddle your stuff, you know, in Mexico.’ ”

Burton’s also a hardballer. But Davis has the ball. And nobody’s quite sure about him.